What do rising inflation and interest rates mean to your savings?

The rising inflation brought about by massive increases in the prices of petrol, heating, foodstuffs, etc. is claiming a lot of attention these days. The soaring prices of energy and many other products are due to, among other things, the war in Ukraine and global COVID-19-induced production shutdowns. All this affects your day-to-day finances.

Similarly, developments in the economy and the financial markets are impacting your pension savings. The high level of inflation is prompting central banks in both Europe and the USA to hike interest rates in an effort to dampen economic activity and thereby reduce inflation and prevent it from taking hold.

However, inflation control comes at a price. The prospects of central banks hiking interest rates and perhaps ultimately triggering a severe economic downturn have already sent both equity and bond prices lower. This affects your savings.

Your savings will go up and they will go down
We invest to grow your savings so that you will receive the highest possible amount of benefits when you retire.

Your savings are invested in equities, bonds, real estate and infrastructure (e.g. wind turbines, new roads and bridges). In times of uncertainty – such as war or financial crisis – equities typically lose the most value, but in the current situation with central banks hiking interest rates in order to curb inflation, bond markets are taking a major drubbing as well.

As at 10 June 2022, global equity markets had lost almost 15% since the beginning of the year, while a diversified portfolio of Danish government and mortgage bonds had lost about 10%. In PensionDanmark’s pension pools, equity and bond market losses are mitigated by positive returns on investments in infrastructure and real estate. The fact that your pension savings also include so-called financial contracts (interest rate swaps), which trigger a gain when interest rates go up, has also helped contain losses.

If you sign in to pension.dk, your savings overview will show exactly how much your savings have gone up or down.

See how your savings are developing

Claus Stampe, PensionDanmark’s Chief Investment Officer, elaborates:
“All our members have seen their savings decline due to rising interest rates and equity market turmoil. But as our pension pools are well-diversified in terms of risk, we’ve made it fairly well through the market turmoil witnessed in recent months. At 10 June 2022, the year-to-date return for a typical young member was negative by 6.5%, while a typical 67-year-old member had lost 3.8%. We don’t like to lose money on our investments. However, year-to-date returns should also be seen in light of the very strong returns generated over the past few years that have caused our members’ savings to grow. In 2021, for example, all our members under the age of 46 received a return of 16.0%, while a 67-year-old member received 10.3%.”

Read more about how we invest your money

Updated on 14 June 2022